Bed Bath & Beyond Stock Is Soaring Again. Just Don’t Call It an Investment.

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Another day, another massive gain for

Bed Bath & Beyond

stock.

Bed Bath & Beyond

(ticker: BBBY) is up about 16% at 12:34 pm Wednesday, while the

S&P 500
is down 1%. If things hold, that’s the fourth consecutive gain of more than 15%.

That’s nothing, though. Bed Bath stock has risen more than 15% in six of the past nine trading sessions. Shares are up more than 75% year to date. The stock is up almost 500% from its 52-week low. That’s tremendous.

Longer-term investors might not be quite so happy, however. Shares are down about 4% over the past year. It’s a case of when you bought the stock, not what you bought that determines if you are elated or pulling your hair out.

It’s a good time to remind investors of some Wall Street math. When a stock drops 50%, it needs to go up 100% to get back to flat. A stock that drops 85% won’t be back to square one until share shave rallied about 567% from their low.

With volatility like this, it’s difficult to call Bed Bath & Beyond an investment. It’s trading more like an option. Stock options are much more volatile than stocks. They come with the possibility of huge gains, relative to the money invested, along with the real possibility of losing the entire investment. Many stock options expire worthless because the share price never hit the option’s embedded strike price.

That options mentality may be what’s behind Bed Bath trading. There is little else to pin gains on. The company is struggling. After reporting earnings in June, the CEO and merchandising head both left the company, and the stock fell almost 24% in response.

And things haven’t gotten much better since late June. KeyBanc analyst Bradley Thomas pointed out in early August that housing turnover slowed and consumer confidence is lower. That isn’t good news for many retailers, including Bed Bath & Beyond. Thomas rates Bed Bath shares Sell and has a $2 price target for the stock.

At this point, management is focused on balance sheet health. That means converting inventory to cash. Bed Bath ended its recent quarter with about $1.8 billion in inventory on its books, up roughly $200 million year over year. The company ended the quarter with about $100 million in cash, down about $1 billion year over year. “Tough times to turn the ship around,” wrote JP Morgan analyst Christopher Horvers, who rates the stock a Hold, in a note following earnings.

Overall, 11 of 17, or 65%, of analysts covering the stock rate shares Sell. The average Sell-rating ratio for stocks in the S&P 500 is less than 10%. The average analyst price target is $4.75, roughly 80% below where shares are trading.

There is one Buy rating, from Morningstar analyst Jaime Katz. But her price target is $17.40 a share, well below where the $24 level the stock is trading at. She had that target price on the stock when shares were trading near $5.

After the recent earnings report, Katz said she was lowering her fair value estimate following a “dismal” fiscal first quarter. Back then, she still called shares undervalued, hoping to see a turn in fundamentals in “another two or three quarters.”

Maybe the worst is over for Bed Bath. Maybe they’ll unload all that inventory. Maybe that is why investors are hopping in. But that’s a lot of maybes. For investors, not speculators, caution should be the watchword of the day.

Write to Al Root at [email protected]